The Great Scam Of The SMI Increase

pedro sanchez

In 2021 the prorated minimum wage in Spain rose to 1,126 euros. This is 24% more than the European average, and much higher than Portugal, the Czech Republic or Lithuania, to name but a few of the countries that have surpassed us in terms of GDP per capita in recent years, explains Daniel Rodríguez in Expansión.

The Spanish government – which has agreed with the trade unions to raise the minimum wage to 1,000 euros five months after the previous one – is in pre-election mode. And, after the Dantesque spectacle of the (non) labour reform, has now set itself the target of a new rise in the minimum wage (SMI). It seems to matter little to them that Spain is the country with the highest unemployment in the OECD, as we have learned this week, or that we are the economy furthest away from pre-crisis levels of wealth.
The important thing is their backward-looking agenda, and to pave the way for the next elections. Even if that means (or, perhaps, that is why they do it) more clientelism, more state dependence, less international influence and less prosperity.

Those who defend the rise in the minimum wage claim that it has no impact on job creation, that they are looking after the interests of the most disadvantaged and that Spain is one of the countries with the most precarious salaries in Europe.

On this last point they are right, although the solution to this problem is very different from what they propose. The reality is that Eurostat’s own comparison of the minimum interprofessional wage with respect to neighbouring countries places Spain in the Top 10 in terms of minimum interprofessional wage.

In 2021, the pro-rata minimum wage in Spain amounted to 1,126 euros, which is 24% more than the European average. Whatsmore, the figure is notably higher, for example, than that of Portugal or the Czech Republic, Lithuania or Cyprus, to name but a few of the countries that have surpassed us in terms of GDP per capita in recent years. Jumping to the other side of the Atlantic, and eliminating the effect of exchange rates and living standards, the SMI in Spain is also 27% higher than in the United States. It seems difficult to argue, therefore, in the light of the data, that Spain has one of the lowest minimum wages in Europe.

There is a heated debate about whether the rise in the SMI destroys jobs or not. Researchers at A&M University and the NBER have published an analysis at MIT whose conclusion is clear: “The minimum wage reduces net employment growth, mainly through its effect on job creation through business expansion. These effects are more pronounced for younger workers and in industries with a higher proportion of low-wage workers.” (Merr, J., West, J. Effects of the Minimum Wage on Employment Dynamics. MIT, Dec.2013). In Spain, the Bank of Spain also warned that the rise to 900 euros of the SMI caused an impact of 100,000 jobs not created in 2020. Meanwhile, Randstad highlights a further 100,000 that could be impacted with the new rise in 2021.

The unemployment rate in Spain is very high, but the youth unemployment rate (30.6%) is unacceptable. Moreover, the evolution of affiliation in sectors that are very sensitive to changes in wages, such as agriculture, shows the hole left by a unilateral move without a pact with employers like this one. Between February 2019 and 2020 (i.e. before the pandemic) affiliation to the agricultural regime had fallen by 4.9%. Or, to put it another way: almost 40,000 people (5% of the total number of affiliates) had lost their jobs or had had to turn to the black economy. According to the latest EPA, Spain has not recovered the levels of employment in the private sector prior to the pandemic; in fact, there are 94,000 fewer wage earners than in 2019.

A country that shows these employment figures can hardly afford a new obstacle to private enterprise and job creation. With an SMI of 1,000 euros (1,167 if we prorate the 14 payments) in 12 autonomous communities, 60% of the regional average wage will be exceeded.

Moreover, Spain is one of the biggest tax hells for labour in the whole of the OECD. Almost 40% of the disbursement made by the employer ends up in the State’s coffers. Or, to put it another way, the worker only receives in his account 60% of his salary in gross terms. This, applied to the minimum wage, leaves a practically unbearable bill for many employers in this country, who will need to earn more than 19,000 euros to be able to pay a salary of 14,000 euros. Are any of the bureaucrats who crowd the ministries and government structures aware of what this means for, say, the owner of a bar in a small village in Extremadura?

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The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.